The repository of one hard-boiled egg from the south suburbs of Milwaukee, Wisconsin (and the occassional guest-blogger). The ramblings within may or may not offend, shock and awe you, but they are what I (or my guest-bloggers) think.

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I’m Sorry

Oh yeah, big fat surprise that is! While the headline is a bit out of context in that Obama was discussing health care, the overall take is correct. Obama recognizes that he has spent more than he has, by a long shot, and realizes that he must find a way to cut costs or increase revenue or leave office with most Americans longing for another Carter term because in comparison, it was nirvana! The problem Obama has though is that he has no clue how big the hole is that he has dug for himself and the nation.

Back when Obama released his fairy tale titled “A budget proposal,” I laid out the many problems with his budget and why he would never come close to closing the gaps on the deficits that he has created. In this post I pointed out several issues that would cause his budget to fail. As of today we have enough information to conclude that Obama’s budget assumptions have failed on two key issues.

Obama’s budget assumes a dramatic improvement in unemployment rates. This improvement is key on two fronts. First, it reduces the outflows of expenses in unemployment compensation. This is a huge budget item at both the Federal and State level. Second, when people go back to work, income taxes get paid thus increasing the tax revenue. Obama’s budget assumptions had the 2009 unemployment rate at 8.1% with 2010 improving to 7.9%. Of course, the same team that put this budget together was also the team who never saw total unemployment exceeding 8.0% with the enactment of a stimulus package so we know that numbers aren’t really their thing. The CBOs most recent survey of private sector forecasts of unemployment now shows that the most optimistic assessments have the unemployment rate averaging 8.8% for 2009 and increasing to 9.0% in 2010.

Second, I warned you that Obama’s budget had a wildly optimistic long term interest rate assumptions. For 2009 the Obama budget assumed the 10 Yr. treasury would be at 2.8%, for 2010 the assumption was 4.0% Well, get ready, that bubble is about to burst as well.

This week the Financial Times is reporting that sales of debt for private businesses is again increasing. While that is good and it shows a data point of improvement in the economy, it’s bad for Obama. As private enterprise increases its desire for debt, at the same time that the government is having to finance huge amounts of additional debt, the overall demand will cause all interest rates to increase. Already the 10 yr Treasury which was running under 3% at the end of April has increased to over 3.4%. That’s a 20% increase in rates over Obama’s assumptions and we’re barely three months past the date of the assumption issuance.

For the past two years Senator, PEBO and now President Obama has been running from one corner of the globe to another apologizing for what he believes, have been heinous actions by the US. You know, actions like freeing oppressed people, calling evil evil and using our economic tools to encourage dictators (hello Fidel!) to broaden involvement in governments and economies that have created the greatest gulfs between “haves” and “have nots” through the use of government intervention. I watch Obama’s groveling around the world and wonder: “When will he apologize to the American people?” I doubt his teleprompter will ever allow that to happen!

2 Responses to “I’m Sorry”

Worse, the median unemployment forecasts put the peak at somewhere north of 10%.

The increase in debt for private business is a bit limited. I pointed out last week that a lot of funds, both private “hedge” and public trust, are avoiding companies that are either under the thumb of TARP or with significant unfunded liabilities.

Yes on both points. When the optimistic forcast blows way past the “budget” you don’t even want to consider the other data points. As to the debt, while debt placement is increasing it is still way below “normal” levels. When it returns to that level and has to compete with the government needs it will make Jimmy Carter’s 18% home mortgages something to be hoped for.